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Archive for January, 2016

Weekly Market Update – January 29, 2016

The Dow rose 397 points Friday on the strength of a number of factors, including a weaker-than-expected Q4 US GDP report and stimulus action by the Bank of Japan.  For the week the Dow was up 2.3% and for the year the index is now down 5.3%.

Q4 US GDP came in at .7%, below Q3 growth of 2.0% and the estimate of .8%.  Personal consumption rose 2.2% in Q4 but was below Q3’s 3.0%.  Though Q4 GDP was below 1%, the economy’s annual growth rate remains in the 2-2.5% range, the prevailing rate of the last six years.  In addition to the GDP report, consumer confidence fell slightly (in response to the market turmoil) while the January Chicago PMI manufacturing report showed the highest level of manufacturing growth since January of last year.  Last night European and Asian markets also closed sharply higher after the Bank of Japan announced it will, among other stimulus measures, adopt a negative-rate interest rate policy to boost growth and inflation.
 
Q4 earnings reports continued Friday with Microsoft and Visa beating expectations.  Not surprisingly, Chevron reported a significant drop in earnings for 2015 while Amazon missed analyst’s forecasts on earnings and revenues.  Microsoft, Visa and Chevron moved higher while Amazon’s shares fell sharply.

The yield on the 10-year Treasury fell 5 basis points (bps) Friday to 1.93%, down 12 bps for the week and now down 34 bps for the year.  Trust preferred shares have held up nicely as a result.  Oil rose Friday to a three-week high, up 25% for that span, closing at $33.62.  Rumors of a cut in daily oil production by OPEC and Russia combined with the release of weekly and monthly reports showing a reduction in the number of operating US drilling rigs and US November production, respectively, helped boost prices of energy-related securities.

Next week’s economic calendar highlights include January domestic auto sales on Monday, weekly jobless claims on Thursday and the important January jobs report on Friday.  Expect auto sales to fall slightly from December, weekly jobless claims to settle in the 280-290,000 range (from 278,000 this week) and the jobs report to show the addition of approximately 180,000 jobs in January (from 292,000 in December) and an unchanged unemployment rate of 5.0%.  Fourth quarter earnings reports will continue through the week as well. 

Weekly Market Update – January 22, 2016

The Dow produced its best day of 2016 Friday, adding 211 points (1.33%) to its recently-diminished total.  The S&P 500 fared even better, rising 2.03%.  For the week the Dow was up .7% and for the year the index is down 7.6%.

A number of factors combined to rally markets on Friday.  Perhaps most importantly, crude oil surged $2.66 to over $32/barrel, lending strength to energy shares and the overall market.  Domestically, existing home sales in December jumped over 14%, the largest month-to-month increase ever, while a January manufacturing index unexpectedly rose.  Outside the US, European Central Bank President Mario Draghi announced that the implementation of additional Eurozone stimulus measures could come sooner than expected, perhaps as early as March.  Also, the Bank of Japan released a similar statement, suggesting further monetary stimulus to help improve the country’s struggling economy.
   
The yield on the 10-year Treasury rose 3 basis points (bps) Friday to 2.05%, up 2 bps for the week and now down 22 bps for the year. 

Next week’s economic calendar highlights include consumer confidence on Tuesday, December new home sales on Wednesday, weekly jobless claims on Thursday and manufacturing and the first estimate of Q4 GDP on Friday.  Expect consumer confidence to fall slightly given the recent state of the markets, December new home sales to increase from November, weekly jobless claims to settle in the 280-290,000 range (from 293,000 this week), the manufacturing report to show an uptick in activity from late last year and the GDP report to show growth of approximately 1.0% in Q4.  Fourth quarter earnings reports will continue as well.  To date, results have been relatively positive, led by the financial sector.

Have a nice weekend,

James Skjong

Weekly Market Update – January 15, 2016

The Dow fell 391 points Friday, a loss of 2.4%. Through Thursday, the DOW was almost flat.

For the year this index is down 8.2%.  What a discouraging way to start the year.

Most economists think the market will have its pullback and then recover.  The economy continues to grow at 2%.  New jobs are being created at the rate of 200,000 per month.  Interest rates and unemployment are low. And, auto production and housing have been strong.

The reason the market is down is that it was pretty fully valued as last year ended. Of more immediate concern, China’s growth rate is slowing.  Yet, China, with 20% of the world’s population, still is growing three times as fast as the US.  Other negative factors are the strong US dollar which gives exporters problems and has caused a slow-down in manufacturing.  The fall in crude oil prices, which should help consumer spending, has not seemed to do so and, instead, there is a lot of adjustments in both US oil producing regions and oil exporting countries. These negatives are hurting corporate earnings, which are expected to be down in 2015 vs. 2014.  2016 looks weaker than 2015 as well, so there is unlikely to be a “V” recovery in the market. Fortunately, there are no big excesses with the exception of the amount of bad government loans in Chinese banks. So basically, I think we can wait this correction out.

Fixed income has fared much better than common stocks in the pullback.  Our fixed income strategy is down about 1% vs. the 8% drop in equities.  The economic environment of slow growth and low inflation is favorable for fixed income, which is not a bad place to park cash. Unsettled world conditions will make any rate increase by the Fed more gradual than expected.

Earnings for the 4th quarter have started to be released.  The big banks like Wells Fargo, US Bank, Citi, and JP Morgan did well by meeting or beating expectations.  Next week will feature a large number of company reports as will the following two weeks.  The view that CEOs give about 2016 could reassure investors.

Crude oil prices continued to fall.  The weakness this week is attributed to the pending implementation of the Iranian deal since one provision lifts the restriction on their sales of crude oil. The price of crude oil is not expected to turn up until late 2016.  A decline in the supply of crude should be triggered by the continued reduction in the number of rigs drilling for oil.  For instance, in North Dakota’s oil fields there are 77% fewer rigs drilling today than 18 months ago.  

Next week’s economic calendar highlights will be dominated by earnings releases. Politics will be in the air as well and probably not as a stabilizing force.  As the Iowa caucuses approach, candidates will become somewhat shriller trying to break into the headlines. Finally, the key element next week will be if the market continues to be super sensitive to China. Multi-national companies will talk about the health of their business in China during their conference calls. Their comments could be market moving.

We will be closed on Monday because of the Martin Luther King holiday.  With the market closed for three days in a row, at least it won’t be able to go down!

Weekly Market Update – January 8, 2016

The Dow tumbled a further 168 points Friday despite a better-than-expected December jobs report.  For the week the Dow was down 6.2% and for the year the index is down the same.

The December jobs report surprised to the upside, showing the addition of 292,000 jobs in the month versus expectations of approximately 210,000.  For 2015 in full, 2.65 million jobs were added, the second-highest total since 1999.  The unemployment rate remained at 5% and hourly earnings were flat from November’s reading.  The strong jobs report helped to quell talk of the US entering a recession while the flat wage growth gives the Fed leeway to postpone another interest rate hike as inflation concerns remain a non-issue.  The Fed initially hinted at four interest rate increases this year, but given the poor start to the year for US and global markets, odds are now in favor of fewer.

Much of the market trouble can be attributed to China.  The world’s second-largest economy continues to devalue its currency (eight consecutive days of gradual “softening”) in an effort to stimulate its economy and increase exports, which have declined for nine consecutive months.  Worries of slowing economic growth in China and emerging markets in general (of note, Brazil is currently in a recession and Russia’s economy continues to struggle as energy prices remain low) have caused markets worldwide to stumble out of the 2016 gate to their worst week-one returns in decades.  Falling oil prices also contributed to the malaise – the price of oil closed at $33.16 per barrel Friday, down over 10% for the week on continued oversupply.
   
The yield on the 10-year Treasury fell 2 basis points (bps) Friday to 2.13%, down 14 bps for the week and the same for the year. Trust preferred shares have held up well amidst the market turmoil, down slightly through yesterday, Thursday, January 7 vs. almost -5% for the S&P 500 Index.

Next week’s economic calendar highlights include weekly jobless claims on Thursday and December retail sales, inflation and industrial production (factory output) on Friday.  Expect weekly jobless claims to settle in the 280-290,000 range (from 277,000 this week), retail sales to show a slight increase from November, the December inflation data to show a slight decline in average prices (fueled in part by the continued fall in energy) and December factory output to decline from November.  Fourth quarter earnings reports will start soon.

 

Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464